Emory Bankruptcy Developments Journal

Volume 29Issue 1

Articles

The Over-Encumbered Trade-in in Chapter 13

Nathan Goralnik | 29 Emory Bankr. Dev. J. 15 (2012)

The “hanging paragraph” in Bankruptcy Code § 1325(a) requires many debtors hoping to retain a vehicle under a chapter 13 plan to repay the full value of their auto lender's secured claim, even if that claim is undersecured. This protection is limited to creditors with a purchase-money security interest in the debtor's vehicle. Accordingly, bankruptcy courts reviewing a chapter 13 plan must consider the validity of an objecting creditor's purchase-money security interest. This issue has proven controversial in cases where the lender financed both the debtor's newly purchased vehicle and excess debt (“negative equity”) a trade-in vehicle. The highly general language of the Uniform Commercial Code affords few clues to the purchase-money status of financed negative equity.

Theresa J. Pulley Radwan | 29 Emory Bankr. Dev. J. 59 (2012)

In 2005, Congress amended the United States Bankruptcy Code (the “Code”) through the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). In part, these amendments required a formulaic calculation of the “projected disposable income” a chapter 13 debtor must pay to unsecured creditors, which is based on the debtor’s prebankruptcy income and allowed expenditures. In consecutive terms, the United States Supreme Court considered the effect of changes to a debtor’s income and then expenses in calculating a debtor’s projected disposable income within a chapter 13 bankruptcy case.